Risk-sharing 'vital for Islamic finance'
Manama, April 26, 2011
To move forward the Islamic finance industry would do well to go back to its roots, according to HSBC Amanah global chief executive officer Mukhtar Hussain.
'Islamic finance has become a force in its own right, especially in the emerging markets of Asia and the Middle East,' he said.
'However, this has not been without its fair share of ups and downs. The industry suffered the after-effects of the global financial crisis and has been criticised for products that look too much like their conventional cousins.
'The main principles of Islamic finance are that of risk-sharing - taking on risks for possible rewards or losses and a requirement for financial transactions to be backed by assets such as properties or land.
'Going back to these principles, especially the latter, will pave the way for what we believe, are the strongest opportunities for Islamic finance which are sukuk project finance and Islamic real estate investment trusts (REITs),' he said.
'Although nascent, there is so much opportunity for more of these deals because project finance bonds and REITs are a natural fit with Islamic finance, which is about building a stable future by investing in the real economy,' he added.
'As the global population is forecast to reach 9.2 billion by 2050 from 7bn currently, project finance sukuk can help raise more capital to build infrastructure in developing countries.
'Islamic REIT, which by definition, is asset-backed by a portfolio of properties, is a new asset class that fund managers and private investors can consider, post the financial crisis, when money has flown out of traditional equities,' he added.-TradeArabia News Service